BU.220.610 The Firm and the Macroeconomy
The Complete Exam Bible · Fall 2026BU.220.610 Overview
- 2 credits
- Fall 2026
- Graduate level
- Eight-week term
- In person
BU.220.610 The Firm and the Macroeconomy is a graduate course at Johns Hopkins University that teaches managers to read the economy as a whole and to use that reading in business decisions. This guide follows its seven teaching modules in order.
- Assessed by Two in-class quizzes (40%), three group assignments (15%) and a cumulative multiple-choice final exam (45%).
- Core models Loanable funds and the quantity equation for the long run, IS-LM for the short run, AD-AS and the Phillips curve for the path between.
- Allowed in the exam A calculator, pencil and paper and hard copies of your own formula sheet or notes; otherwise closed book.
- Most common slip Treating a movement along a curve as a shift, or moving the interest rate the wrong way after a policy change.
How BU.220.610 is assessed
| Component | Weight | Format |
|---|---|---|
| Quizzes (Mult. Choice, Mod. 3 & 6) | 40% | Two individual quizzes at 20% each, taken in class |
| Group Assignments (Essays or Problem Sets, Mod. 2, 5, & 7) | 15% | Three group submissions at 5% each |
| Final Exam (Mult. Choice, Mod. 8) | 45% | Individual, cumulative, covering all modules |
Weights are those published in the Fall 2026 syllabus and total 100%. Quizzes and the final exam are closed book, although a calculator, pencil, paper and hard copies of your own formula sheet or notes are allowed. Attendance is mandatory, and only one absence is excused without documentation and advance notice. The syllabus and quiz pages say the Module 3 quiz covers Modules 1 and 2 and the Module 6 quiz covers Modules 3 to 5, while the module overview pages say Modules 1 to 3 and 4 to 6, so check the current range on Canvas.
Assessment structure
The two quizzes and the final exam are multiple choice; the three group assignments are essays or problem sets.
Current BU.220.610 dates
| Date | Item | Control |
|---|---|---|
| 17 September 2026 | M2 Group Essay Assignment | Due date listed in the Fall 2026 course summary. |
Dates are as published in the Fall 2026 course summary on Canvas. Confirm exact deadlines and submission settings in the live LMS.
What BU.220.610 covers
Seven chapters follow the course modules in order: measurement first, then the long-run economy and money, then the short-run IS-LM model, price adjustment and the inflation and unemployment trade-off.
Measuring GDP, Inflation and Unemployment
GDP three ways, the national accounts identity, CPI versus the deflator, and the unemployment rateModule 1 opens the course with the three statistics that move markets on release day: output, inflation and unemployment. The aim is practical.
- Three approaches to measuring GDP
- The fundamental identity Y = C + I + G + NX
- Value added and double counting
- CPI, GDP deflator and PCE deflator
- Nominal versus real GDP
- The labor force and the unemployment rate
Long-Run Output and the Loanable Funds Market
Production, the real wage, saving and investment, and how fiscal policy moves the real interest rateModule 2 builds the first complete model of the economy and sets it on the horizon businesses use for strategy: five to ten years, long enough to open a plant, enter a market or add a product line.
- Production function and constant returns to scale
- Marginal product and the real wage
- Consumption, investment and fiscal policy
- Goods-market equilibrium at potential output
- The loanable funds diagram
- Crowding out and crowding in
Money Supply, Credit and Banks
Functions of money, fractional-reserve banking, the money multiplier, Fed tools and bank leverageModule 3 turns to money: what it does, who creates it, and why banking trouble quickly becomes a macroeconomic problem.
- Functions of money and fiat money
- Currency, M1 and M2
- Fractional-reserve banking and deposit creation
- The money multiplier and the monetary base
- Federal Reserve policy tools
- Bank capital and leverage
Money Demand, Interest Rates and Long-Run Inflation
The quantity equation, the Fisher effect and the costs of inflation and deflationModule 4 completes the long-run model by answering the question Module 2 left open: what sets the price level, and therefore inflation? The answer runs through money demand.
- Real and nominal money demand
- Velocity and the quantity equation
- Money growth, output growth and inflation
- Nominal and real interest rates and the Fisher effect
- Costs of expected and unexpected inflation
- Deflation and real debt burdens
The IS-LM Model: Output and Interest Rates
Keynesian cross, IS and LM curves, short-run equilibrium, shocks and policy leversModule 5 moves from the long run to the business cycle, the tendency of the economy to rise above and fall below its central path at potential output.
- Fixed prices and the short run
- The Keynesian cross and the multiplier
- Deriving the IS curve
- Liquidity preference and the LM curve
- Solving for short-run equilibrium
- Shocks, policy levers and crises
Aggregate Demand, Aggregate Supply and Price Adjustment
Deriving AD from IS-LM, supply at each horizon, and the path back to potential after shocksModule 6 connects the two halves of the course. The long-run model of Modules 2 to 4 has flexible prices and output at potential; the short-run model of Module 5 has fixed prices and output set by spending.
- Deriving aggregate demand from IS-LM
- What shifts aggregate demand
- Short-run and long-run aggregate supply
- The price-adjustment rule
- Adjustment after a demand shock
- Supply shocks and stabilization choices
The Phillips Curve, Unemployment and Monetary Policy
Sticky prices, Okun's law, the Phillips curve, disinflation and the COVID-19 shockModule 7 takes the final steps toward understanding how the Federal Reserve pursues the goals Congress gives it: price stability, read as 2% annual inflation, and maximum employment, understood as unemployment near a natural rate currently put at about 3 to 4%.
- The sticky-price model of short-run supply
- Expected prices and the output gap
- Okun's law
- The Phillips curve and inflation expectations
- Disinflation and the sacrifice ratio
- The Fed's mandate and the COVID-19 shock
The course starts with measurement: how GDP is counted from spending, income or value added, why the national accounts identity always holds, how the consumer price index differs from the GDP deflator, and what the unemployment rate does and does not capture. It then builds the long-run economy that firms plan around over five to ten years.
Output is fixed at potential by capital, labor and technology, and the real interest rate adjusts in the loanable funds market so that national saving equals investment; that is why, in the long run, fiscal policy changes the cost of capital rather than total output. Two modules on money follow.
The first explains how commercial banks create deposits, how the money multiplier links the monetary base to the money supply, which tools the Federal Reserve uses, and why leverage makes banks fragile. The second explains money demand, the quantity equation and the Fisher equation, and uses them to show that sustained money growth ends up as inflation and that inflation, like deflation, has real costs.
The second half of the course fixes prices and studies the business cycle. The IS-LM model, which the course treats as its workhorse, shows how shocks and fiscal or monetary policy move output and interest rates together. Aggregate demand and aggregate supply then let prices adjust, tracing how the economy returns to potential after a demand shock and why supply shocks force a trade-off between prices and output.
The final module derives an upward-sloping short-run supply curve, links it to unemployment through Okun's law and the Phillips curve, and uses the framework to discuss the Federal Reserve's dual mandate and the COVID-19 downturn.
Each chapter here pairs a free overview, worked example and key terms with a full paid chapter of derivations, figures and multiple-choice style drills that match how the quizzes and final exam are set.
BU.220.610 cheatsheet for the final exam
AskSia publishes a free BU.220.610 cheatsheet for the final exam, a cheat sheet that follows the official permitted-materials rule for this assessment and condenses the topics in this guide. Open the BU.220.610 cheatsheet.
Worked example · free
Trace a Fed easing through IS-LM and back to potential
- 2Initial equilibrium: 2,400 minus 100r = 1,600 + 100r gives r = 4 and Y = 2,000, exactly at potential.
- 3After the easing: 2,400 minus 100r = 1,800 + 100r gives r = 3 and Y = 2,100, 5% above potential.
- 3Medium run: output above potential pushes prices up, real balances fall and LM shifts back until Y returns to 2,000 at r = 4 with a higher price level.
Key terms
- Endogenous Variable
- A variable a model explains, shown on the axes of its diagram, such as output or the interest rate in IS-LM.
- Exogenous Variable
- A variable a model takes as given, such as government purchases or the money supply; changing it shifts a curve.
- Real Interest Rate
- The nominal interest rate minus inflation, the true cost of borrowing and the return to saving measured in goods.
- National Saving
- Output minus consumption minus government purchases, the sum of private and public saving and the supply of loanable funds.
- Monetary Base
- Currency plus bank reserves; multiplied by the money multiplier, it gives the money supply.
- Velocity
- How many times the average dollar is spent on final output in a year, nominal GDP divided by the money stock.
- IS-LM Model
- A short-run model with fixed prices in which the goods market and the money market jointly determine output and the interest rate.
- Aggregate Demand
- The total quantity of output demanded at each price level, falling as the price level rises.
- Output Gap
- The difference between actual output and potential output, positive when the economy runs above capacity.
- Phillips Curve
- The short-run relation in which inflation equals expected inflation minus a term in cyclical unemployment plus supply shocks.
BU.220.610 FAQ
How is The Firm and the Macroeconomy graded?
The Fall 2026 syllabus gives two multiple-choice quizzes in Modules 3 and 6 worth 20% each, three group assignments in Modules 2, 5 and 7 worth 5% each, and a cumulative multiple-choice final exam in Module 8 worth 45%.
What format does the final exam take?
It is an individual, cumulative multiple-choice exam covering every module, run in a locked-down browser that blocks electronic sources. The final exam page lists 60 questions in 90 minutes, which works out at about ninety seconds per question.
Can I bring a formula sheet or notes into the quizzes and final?
Yes. The syllabus describes quizzes and the final as closed book but allows a calculator, pencil and paper plus hard copies of your own formula sheet or notes. Electronic sources are blocked and phones must be put away.
Which modules do the two quizzes cover?
The syllabus and the quiz pages give Modules 1 and 2 for the Module 3 quiz and Modules 3 to 5 for the Module 6 quiz. The module overview pages give Modules 1 to 3 and 4 to 6, so revise the wider range and check with the instructor.
How do the group assignments work?
There are three, in Modules 2, 5 and 7, set as essays or problem sets and worth 5% each. Groups of up to five come from the same section. Late work is capped at the lowest on-time score and is refused once solutions are posted.
Which models matter most for revision?
Every module feeds the cumulative final. The course describes IS-LM as its workhorse and AD-AS with an upward-sloping supply curve as its most general tool, so practise shifting those curves until the direction of every variable is automatic.
Is this a graduate-level course?
Yes. The course number 610 places it at graduate level, the syllabus notes that D grades are not awarded at that level, and it carries 2 credits with principles of microeconomics as the recommended background.
Questions students ask in each BU.220.610 chapter
- Why is buying shares not counted as investment in GDP?
- In the national accounts, investment means spending on new physical capital, new housing and additions to inventories. A share purchase only transfers ownership of an existing claim, so the course treats it as saving rather than as spending on newly produced output. Chapter 01 · Measuring GDP, Inflation and Unemployment
- Why does fiscal policy not change output in the long-run model?
- Output is fixed by capital, labor and technology once prices are flexible and every resource is employed. Fiscal policy can only reallocate that output between consumption, investment and government use, and the real interest rate carries the adjustment. Chapter 02 · Long-Run Output and the Loanable Funds Market
- Why does a bank run shrink the money supply even if the Fed does nothing?
- Depositors withdraw cash, which raises the currency-deposit ratio, and nervous banks hold more reserves. Both ratios sit in the multiplier's denominator, so the money supply contracts although the monetary base has not changed. Chapter 03 · Money Supply, Credit and Banks
- Why does money growth cause inflation only in the long run?
- Over long horizons output is fixed by productive capacity and velocity is roughly stable, so extra money can only raise prices. Over a few quarters prices adjust slowly, so extra money can change output and interest rates first. Chapter 04 · Money Demand, Interest Rates and Long-Run Inflation
- Why does a fiscal expansion raise output by less in IS-LM than in the Keynesian cross?
- The cross holds the interest rate fixed. In IS-LM, higher income raises money demand, the rate climbs along the LM curve, and investment falls, which offsets part of the multiplier effect of the extra government spending. Chapter 05 · The IS-LM Model: Output and Interest Rates
- Why does aggregate demand slope downward if firms can raise prices?
- The slope comes from the money market, not from individual pricing. A higher price level shrinks real balances, pushes the interest rate up along the IS curve and cuts investment, so the quantity of output demanded falls. Chapter 06 · Aggregate Demand, Aggregate Supply and Price Adjustment
- Why does the short-run supply curve slope upward?
- Firms that set prices in advance use the price level they expect. When demand pushes actual prices above that expectation, flexible-price firms raise prices while the others hold theirs, and output rises above potential until expectations catch up. Chapter 07 · The Phillips Curve, Unemployment and Monetary Policy
How to study for the exam
Revise in the order the models are built, because each one reuses the last: national accounts, loanable funds, money supply, money demand and inflation, IS-LM, AD-AS, then the Phillips curve. For each model, write the variables, the slope of each curve, what shifts it, and one worked shock, and add the boxed equations to your hard-copy formula sheet as you go.
In the final two weeks switch to timed multiple-choice sets at about ninety seconds per item and log every direction error you make.
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